Tuesday, January 6, 2009

New "Pledge" Sheet - Obama Era v 2.0

Ok folks, almost a year to the day due to popular demand (I was asked often when I'd actually get started) I created a post I called a pledge sheet for readers interested in future investment when a true mutual fund was born [Jan 7: Reader "Pledges" Toward Mutual Fund Launch] Ah, we were an innocent bunch then - not realizing that in fact Ben Bernanke/Paulson/Bush and crew would not save us from facing the lions in the Coliseum (Collesium). But never fear, it is now a year later and we are trading Paulson for Geithner and Bush for Obama, and this time around we will be saved. And if not, Bobby Jindal/Phil Gramm/Ben Bernanke will save us in 2012! One of these times, someone is going to get us back on track ;)

But I digress... we've just gone through the worst year since the 1930s and many a portfolio is battered. The good news is based on that historical precedent we should not have to deal with such a year again until around 2060. (I wish) And thus far we are on pace for a +300% year for 2009 ;) We were actually doing quite good on our pledges until August 2008 and were up to just under $4M. Then the bear market within a bear market arrived i.e. September/October/November (3 months that shall live in infamy) and hit us. Judging by what all these mutual funds in my 401k and others I look at have done the past year, I assume many readers took serious hits. So, we're going to start from "scratch" since I assume some readers probably gave up on the market completely, others took serious hits to their portfolios, and new readers have arrived.

Obviously I am still bearish on the economy in 2009, but the economy is not the stock market. Further, if the market falls to a level I think it could in 2009, and GeithObananke pull the rabbit out of the hat, we might have a most excellent opportunity in the market by latter 2009. And certainly this era's actions will lead to the investing bubbles of 2010-2013. Probably when people are most disgusted with the stock market, will be the best time to start a fund in fact. But the reality is we don't really need an "up" market or "down" market - except in times of extreme duress this is a market of STOCKS not a STOCK market - there are always opportunities. The past 6-7 weeks have proven that - there have been many excellent money making opportunities in a market that mostly just went sideways. I will also say after the colossal failure of "long only" funds of the past decade 0ur "hedge fund" (without the leverage!) type of strategy would be a more attractive option than ever; not just in the past 10 years but also in the coming 10 as the country faces many challenges. There will always be good stocks to short and go long, and this niche of working both angles is simply tiny in the mutual fund world. So along with the transparency you are getting a taste of (some of which will have to be ratcheted back due to SEC rules), we'll have a unique role that is very underfilled in the mutual fund universe.

So with that said, I am going to make very specific requests on pledges this time around
  1. Assume a 2nd half 2009 launch, maybe Jun 1, maybe Dec 31st
  2. Assume at any point in 2009 the market may be down 30% from here
  3. Make your pledge based on liquid assets that are not currently in some high octane mutual fund that loses 40% when the market falls 30%, nor gains 50% when the market gains 40%. That money is not something that can be counted on with the volatility in this market.
Further, I've sent some emails out in the past few weeks so if you received an email in the past 14 days and have communicated with me, you don't need to send me a new email; I've already included you in this new pledge sheet. Also if you have made a pledge since Dec 1st, 2008 I am going to consider that pledge still valid. But anything before December 1st, I am going to wipe the slate clean.

Same format as before: first name, last initial, pledged amount, and state you live in. Once more, to be clear, you are not sending me money that I'm going to hold until launch when you 'pledge' - you are simply making a verbal commitment "when you are up and running, I want to invest this amount". You can attach a comment to this post or as most people do, send me an email (my address is found on the upper left of the blog) with the above information. I'd prefer an email if possible.

Here are the pertinent posts if you have not read through them
  1. The overall goal and why I'm aiming for $7 approx million [Jan 7: Reader "Pledges" Toward Mutual Fund Launch]
  2. Frequently Asked Questions [May 26: Frequently Asked Questions] Very important to read
  3. Why I need your state [May 23: Investment Pledges by State] I'm also starting this list over
This is a 2 sided street; people always email me "When can you start?". Easy answer: I can begin at "any time" the capital is there - obviously I can just bring the thought process and experience - the readers will bring the funds. Worst case scenario - I am no better than the 8000 funds out there but you get a halfway entertaining monologue along the way. Best case scenario is all upside from there ;) So we'll see how this time around goes and hopefully we're at least halfway ($2M) to where we were before said lions visited portfolios worldwide. As always, thanks for continued readership.

p.s. One more thing to finish this post in this new day and age; due to Bernie Madoff let me reiterate one of the Q&As from my FAQ which seems most appropriate in these times of scandal. The irony is the SEC seems to watch the Martha Stewarts or little fish of the mutual fund world very closely while missing the big scandals - ah, American regulation. Priceless. On a serious note, I cannot recall in the past 20 years ever hearing of any mutual fund running off and stealing clients money or running Ponzi schemes - that appears to be the jurisdiction of the "smart money" (ahem)

Q: How do I know you won't run off with my money?
A: Well, that would defeat the purpose of this endeavor, but over and above that I won't ever see your money. I will be paying a 3rd party source to handle just about everything outside of making buy and sell decisions. So as with any fund, you're going to be sending money, receiving paperwork, etc from someone I outsource to - not named Rising Tide Growth Fund.

Bookkeeping: Limit Order on EZCORP (EZPW) Hit

Hmm, maybe I need to whine about positions more often.... I whined this weekend how I was not getting any pawn shop love and lo and behold, EZCORP (EZPW) takes off.

My limit order at $17 hit so I am exiting 400 of 1300 shares. This reduces the position from 2.8% of fund to 1.9% - the stock is up from $14 to $17 in just a few days, I added quite a bit on Dec 23rd in the $14.80s [Dec 23: Bookkeeping: Adding to EZCORP] - so on that batch a tidy two week return of 15%. Trading opportunities in this market continue to be exquisite for swing traders. If we can get $18 I'd probably drop another 1% stake, and hopefully rebuy near $15.

For this one I cannot thank Obama, but instead his predecessor ;)

As you can probably notice in times like this I like to rotate money out of things running hot and heavy and buy merchandise with good charts but falling/correcting/consolidating.

What a busy day!

Disclaimer: for newer readers, I am apolitical - both parties are doing an excellent job of ruining the country with equal measure. Hence I make facetious and or satirical comments about both sides.

Long EZCORP in fund; no personal position

Bookkeeping: Closing Mosaic (MOS)

I never thought this day would come - long time readers know that I once considered naming my first unborn child Mosaic (MOS) in honor of all the dollars she made us from summer 2007 to summer 2008. Many times Mosaic was a 6-8% position for us as she ran, ran, ran.

But then she turned evil. When we got rid of just about all our commodity exposure by early fall 2008 I only kept 3 names for trading purposes and MOS was one.

As you can clearly see by recent action, if I want to play fertilizer as a theme I can buy an oil stock. Or a dry bulk shipper. Or an iron stock. Or a steel stock. Or a company located in Brazil. There is no reason to literally own a fertilizer stock in the 2007-2009 casino if you want to be long fertilizer. Therefore I do not need two names in the space. I wrote this morning Mosaic's earnings or guidance really does not matter - it's all about how hot commodities are. And they are hot today... but it is starting to get silly out there. So this is as good of time as any to bid farewell.

I am going to sell the last 0.7% stake in Mosaic in the mid $38s. This is one of our last remaining original purchases from August 6, 2007. This was once our largest winner by dollar amount but after the carnage of 2nd half 2008 we are leaving with "only" a $20,000 gain. I wish I could say that about every stock :)

Normally to keep my exposure in the sector, I'd roll the position from one of the two names into the remaining but with the drunken stupor that has now overtaken commodity stocks I'm just going to keep it in cash. My thesis is government is not bigger than the market and the real "Main Street" economy is going to suffer much longer than people currently believe. Demand is not going to "come back" so easily as people now theorize. It helps to have a job which is going to be a "small wrinkle" as we go further into 2009. And emerging markets won't be jumping back to old build rates in 6 months either.

The market currently disagrees - but that's ok - the "thesis mongers" have been wrong on just about every point the past 18 months ("it's not a recession - the data does not support that", "it's only a subprime issue", "it's time to buy financials because sovereign wealth funds are", "we got our first interest rate cut - don't fight the Fed", "technology is a safe place to hide", "emerging markets will decouple and be unaffected by the US slowdown", "housing will rebound in spring 2008", "financials have bottomed, it can't get worse than Bear Stearns", "the economy will rebound in 2nd half 2008"); but only after they run stocks up for no good reason first. All these thesis made me look anti social for a few weeks or months. Until reality hit. See, hope is not new - it's with us constantly... only the face of hope changes..... (and the thesis)

For now farewall Mosaic - we'll meet again down the road. Call me about 4-5 months before a real global economic recovery begins. Until then I'll probably go date Cleveland Cliffs or someone new... just a fling...

No position

Back to the Future - Commodities Rule Again


I feel like I've fallen asleep and someone transported me back to about 9 months... the whole gang is back!

HAL9000 is on a buying spree of epic proportion.

Breakout... breakout... breakout... breakout... global growth is back. Obama says so. (well actually he said yesterday the economy is bad and getting worse - details, details) Everything he touches, turns to gold. Best. President. Ever. And he hasn't even started. At this pace the market might get back to all time highs by Inauguration day. Surely Dow 40,000 will be in reach by end of term 1 in 2012.

I'm having flashbacks as all my old positions are being taken back to the future by HAL. The charts above are why I say it makes zero sense for you to spend even 1 minute of research in commodity stocks. In the new hedge fund era of the past few years - you just buy 1, and they all go together - they are all the SAME stock in their eyes. If it's coal, if it's natural gas, if it's wheat, coffee, oil service, infrastructure, steel, fertilizer, iron, dry bulk shipping, oil service - it all is 7 degrees of Kevin Bacon and the hedgies will move en masse into ALL of it. And vice versa. That is the casino we've built... so don't need to waste a precious moment doing research or fundamental analysis on any of the companies - just buy 1 or 2 and you own them all. You can even buy 8th derivatives like Gafisa or Mercadolibre - as long as the stock is located in a country with commodities to sell - it gets run up as if it has an oil field under its headquarters.

"Student body left". "Student body right" - it's been like this for well over a year now. It's nonsense - but this is the 'efficient market' in action. Horde trading. Computers at their best.

When I start seeing action like this - stocks no one wanted two weeks ago there are now fist fights on the casino floor over who can buy it first - and reading the bullishness that has now overtaken everyone.... time to get my jacket on, and begin slinking to the door with the Exit sign over it... keep one foot in the party with my Vodka & Kool Aid tonic in hand... but be ready to be the first to the door when the cops come.

p.s. personally I'm hoping for a return to $140 oil so we can hear talk about how $4 gas is a great thing for the American economic recovery. But that's just me.

Bookkeeping: Cutting back on Jacobs Engineering (JEC)

Remember, this is an Obama thesis stock (infrastructure) - it certainly is breaking out so I am going to keep about half the position. We doubled down our position on Dec 31st in the $47s and just a few days later we have $54.60s. That's 15% right quick (this was our 2nd largest long position coming into the week)

I'm cutting this from a 2.9% stake to 1.4% - if I could place a trailing stop of about 4-5% I'd probably do that instead, but I don't have that available to me in the Marketocracy.com tracking account I use, so I'm just going to take some off the table and lock in my 15% gain. With a clear of $54 there is no real resistance until mid $60s (200 day moving average) so as long as hope is in the air, this stock can chug chug chug. The chart is a beauty the past week but there is no great intelligence on my part here with JEC - just throw a dart, hit an infrastructure stock, and high five your friend as the stock goes up, up, up ...since hope is on the way.

Thanks Obama! You just have to love a stock market where Washington D.C. is 50x more important than New York City. Capitalism!

Long Jacobs Engineering Group in fund; no personal position

Bookkeeping: Cutting LDK Solar (LDK)

Gotta love this market; you just can't lose on the long side anymore. Despite the warning from LDK Solar (LDK) last night, Obama hope > facts. The stock is now back up to the low $15s and my limit sell triggered. I am exiting 800 of 900 shares and taking this down from a 1.6% stake to 0.2% - these shares were bought at $13.40 one week ago. [Dec 30: Bookkeeping - Cutting ReneSola (SOL); Adding to LDK Solar]

This is far and away my favorite President so far (and he hasn't even started!) Everything he touches, turns to gold. Up 13% in a week - despite a warning. Thanks Obama!

I'll rebuy LDK north of $16 (when it clears its 50 day moving average) because we risk the danger of Obama saying "solar" out loud and every stock in this sector doubling overnight. For now I have very little exposure in the solar space. I feel very fortunate to have executed this trade and leaving with a quick and dirty profit ;)

Long LDK Solar in fund; no personal position

Bookkeeping: Restarting Thoratec (THOR)

It is interesting that 4 of the 6 names I outlined in Saturday's 'Potential Portfolio Candidates' in our "waiting for a pullback" category have pulled back to support in the first day and a half of this week. This goes with the broader view I am seeing in this market - people are now moving from the leaders of the past month and moving into far more speculative fare. I see a lot of small cap stuff (today the sexy choice outside commodities is technology) running hard for no good reason other than speculators want new playthings.

I am going to restart an initial position in Thoratec (THOR) as it pulls back to its 20 day moving average of $29.75 or so. It is currently in the $29.50s so I'm re-starting with a 1.5% stake. This is not a market I will be chasing all this speculative junk running up 30% in a week on "thesis" - even the quality stocks I don't want to chase. Because when they reverse a lot of people are going to get smacked... and abruptly.

As I wrote this weekend, I had a group of 6 stocks (QSII which we just talked about was one of them) I was interested in on a pullback. We added 1 yesterday and the second today. Thoratec is down from $33 on Friday, so we're getting it about 11% lower - that said, I am hoping to see it down in the upper $27s which is its 50 day moving average to make a larger purchase.

So the strategy from here (so you see in advance) will be to add more either (a) on a bounce off the current level - that would signify serious strength or (b) as it falls to the 50 day moving average - near $28. Conversely, if the stock falls below $27 or so on a closing basis I'll cut back, and take a small loss since the stock would of broken support and be weaker than I anticipated and could have much lower to go... ($23s or $24s in fact)

I identified Thoratec [Aug 4: One for the Radar - Thoratec] quite a while back but exited [Oct 26: Closing Thoratec First Thing Tomorrow] after a product scare which appears to be less scary than the original headlines (when the news hit, the stock was down 50% after hours before recovering in pre market the next session to "only" be down about 12%)

On a fundamental basis I really like this name [Oct 30: Thoratec Smashes Earnings; Somehow Guides Up] - I was just thrown for a major loop with the product issue. Since that time in late October the stock has rip roared higher without me.

We lost $2k the first time around so hopefully we have a better experience this time. The stock has a rich valuation but is a unique niche growth story in healthcare. And it is not a thesis stock; it is standing on it's own two feet.

[Dec 5: Thoratec with Positive Data]

Long Thoratec in fund and personal account

Analyst Throws Water on "Hope" in Medical IT

One area I've identified as yet another "Obama hope" sector is medical IT - the two stocks I've been looking at are Cerner (CERN) and Quality Systems (QSII).

Two other names of interest are athenahealth (ATHN) and AllScripts Healthcare (MDRX).

This is really just like the solar and infrastructure areas - buy because Obama promises to shovel money down the throat of a sector or "likes" the sector. Even if very little money will show up anytime soon - that doesn't matter to HAL9000 and crowd. They buy thesis, not reality. An analyst tried to warn about this in infrastructure a few weeks ago [Dec 19: Citi Analyst Frowns on Obamamania; ABB Gives Reality Check] - the stocks fell for a day or two before hope returned.

So we have a quandry very similar to solar or infrastructure - buy on reality? or buy on Obama hope and hedge fund thesis? I've been targeting Quality Systems which is up about 80% since early December on 'thesis', and waiting for it to pullback to a major support area - it is doing a textbook move today to the 50 day moving average (upper $38s).

Tough call this one... I am going to watch it closely here and I'd like to see a bounce before getting in, even if I have to pay up a bit... it is now in the low $39s; it could bounce here or fall further to the 200 day moving average near $36, or simply fall more on "reality". But IF this follows the infrastructure call from mid December, after today's reality check the lemmings will run right back into the name ... on hope. I'd much rather buy stocks on fundamentals rather than "HOPE" but almost all the big movers of late are hope stocks - the entire commodity space is flying on hopes of the global recovery that is "coming soon".

So in the next 2 sessions or so we should see if hope (thesis) once again overpowers reality.

I'll have to look closer at ATHN as it has a quite good chart as well.

Here is the "reality"
  • Health care information technology stocks slid Tuesday after a Leerink Swann analyst said the electronic medical records portion of President-elect Barack Obama's economic stimulus package will not help the sector right away.
  • "Our best guess as to the time line for federal money to work through state grant and loan programs in any material way is at least 12-18 months," Bret Jones said in a client note. The climate for health care IT companies is still very difficult, Jones wrote, and investors may be disappointed as they wait for the stimulus package to take effect.
  • In his presidential campaign, Obama proposed greater funding for electronic medical records as part of a plan to save money for patients and reduce health care premiums. That funding is expected to be tied to an impending economic stimulus plan.
  • Jones downgraded shares of Cerner Corp., AthenaHealth Inc., Allscripts-Misys Healthcare Solutions Inc. and Quality Systems Inc. to "Market Perform" from "Outperform." Each of those stocks has climbed at least 20 percent since Dec. 1, with shares of Allscripts and Quality Systems rising more than 50 percent. (hope! thesis!)
  • He said the stocks may decline when the companies begin to report their fourth quarter results. As the reports come in, Jones said, investors will see the results of cutbacks in hospital spending as the hospitals work through the damaged credit market, lower admissions at hospitals and increased bad debt. (no, not facts! stop the facts! the market is about thesis!)
  • He added that Watertown, Mass.-based AthenaHealth may not benefit very much from the stimulus plan because its AthenaClinics is not a leading emergency medical records product yet.
  • During the expected sector retreat, Jones recommended shares of companies that do business with ambulatory clinics like AthenaHealth, Quality Systems and Allscripts. His secondary recommendation was inpatient vendors like Cerner and Eclipsys Corp.
This is my favorite part of the report
  • Based on contact with a lobbyist, Jones said Obama's health care staff plans to direct $5 billion to $10 billion to health care IT funding. However, not all of that funding will be used for electronic medical records, he said: Some will be used on infrastructure and setting up a national health information network.
Why is that my favorite? Because when you want to know how a pork barrel ladden $800 Billion stimulus will be allocated, you go to the best source - a lobbyist. And that kids, sums up our system better than I ever could.

No positions; just shaking my head at what the market has become

Normal Bears in Hibernation - Panda Bears (and Bulls) Winning


We said yesterday we'd look to get more aggressively short on a break below S&P 920... in the last hour we fell to 921 but bounced so bears remain in hibernation other than Panda (Obama) bear. (remember, 2009 is the year of the panda - ignore all bad economic news; that only matters on Main Street; it's panda time on Wall Street)

As we showed in the weekend summary the next range "up" is S&P 920 to 950, which will take us to mid November highs. If we "clear and hold" 950, than the next range is 950 to 1000. From a purely hope standpoint, it would seem like a rally into S&P 1000 on Jan 20th could be in the air.

Like we said, we are not chasing here - and I'd like to see how the market handles the retail reports Thursday and jobs report Friday. If they start buying retail stocks on "it was atrocious but it can't get worse than this" logic, and "hey 600,000 people lost jobs but it can't get worst than that" logic on Friday than we probably rally right into inauguration. When all the facts on the ground mean nothing and people continue to relentlessly buy on hope and/or "the coming recovery in 6 months" you just have to go with the flow. We've had similar moves in late 2007 and multiple times in the first half of 2008 - the facts on the ground were degrading but the market was whistling past the graveyard. The problem with this is one needs to jump ship quickly when things turn; the market takes away much quicker than it gives. Somehow in the stock market there are long periods where bad news is ignored and then suddenly in a 2 week span everyone wakes up and accepts the bad news and the market corrects rapidly.

But for now drink your Kool Aid, look wistfully out the door as gas rises to $2.00+ (awesome for the consumer), and celebrate panda time.
  • But if the price of gasoline continues rising, it may become another headache for consumers worried about their jobs and the dropping value of their homes and investments.
  • Rising oil prices have helped push the wholesale price of gasoline up by 40 percent since Dec. 24, leading to predictions by energy experts that retail gasoline prices will spike by as much as 25 percent in coming weeks.
But not to worry - even as gasoline prices have fallen from $4 to $1.60s with no real pickup in demand, a country full of consumers who are not increasing consumption of a commodity that costs $1.60 a gallon, will soon be purchasing $20K cars and $250K homes. Thesis vs reality. The "hope mongers" simply do not wrap their hands around the fact this is a consumer led recession; they are STILL stuck in their "corporate led recession" thinking of the early 90s and early 00s. You can lead a horse (consumer) to water (the mall/an empty housing lot/a car dealership) - but you can't make her drink.

New York Times: As Vacant Office Space Grows, So Does Lenders' Crisis

Normally I'd be worried about this type of story and offer dire warnings that I've been repeating for a long time. I'd fill you with holiday cheer about how retail outlets you know will go bankrupt, one off mom and pop shops you never heard of would go under, and strip malls across Americana will be sitting 30-70% empty in about 12-15 months. How shrinking small businesses who once sat in office building suites will go under and leave half empty floors in building across building. However, President Elect Midas shall magically fill 80% of all empty office space by transforming a nation of service workers into shovel diggers and Caterpillar machine workers. (and solar panel installers and school retrofitters - whatever that is) How that fills office space, I don't know - but work with me here. It's a thesis. (need I remind you this all shall happen "in 6 months" when the US economy returns to "good times") The other 20% of office space that Obama does not fix with his healing hand? That's what the next bailouts are for [Dec 22: Wall Street Journal - Property Developers Ask for Government Bailouts]

Again, I'd like to reiterate I like this Obama guy - I just think by this summer or fall, when people who expect the man to part the seas with his magic wand get disappointed, he is going to unfairly lose his honeymoon. But until then, let's clap in glee - shall we?
  • Vacancy rates in office buildings exceed 10 percent in virtually every major city in the country and are rising rapidly, a sign of economic distress that could lead to yet another wave of problems for troubled lenders.
  • With job cuts rampant and businesses retrenching, more empty space is expected from New York to Chicago to Los Angeles in the coming year. Rental income would then decline and property values would slide further. The Urban Land Institute predicts 2009 will be the worst year for the commercial real estate market “since the wrenching 1991-1992 industry depression.” (is that the worst year pre or post bailout?)
  • Rising vacancy rates were expected in Orange County, Calif., a center of the subprime mortgage crisis, and New York, where the now shrinking financial industry dominates office space. But vacancies are also suddenly climbing in Houston and Dallas, which had been shielded from the economic downturn until recently by skyrocketing oil prices and expanding energy businesses. In Chicago, brokers say demand has dried up just as new office towers are nearing completion. (strange for an economy that should be recovering "by the 2nd half of 2009")
  • There is no relief in sight for Orange County, where subprime lenders and title companies once dominated the market but are now shedding space because their business has dried up, and big banks are now shrinking because of a wave of mergers. The vacancy rate has soared from 7 percent at the end of 2006 to 18 percent, a rate that the Tampa area should match this month, local real estate brokers say. (welcome to the morass Tampa! Good to see you hear - Obama should be stopping by any day now, just remain patient)
  • In New York, where rents had risen the highest as financial companies gobbled up office space, vacancy rates are floating above 10 percent for the first time in years.
  • What looked like the worst possible case a few weeks ago for Chicago now appears to be the most likely outcome, said Bill Rogers, a managing director at Jones Lang LaSalle, a real estate broker. The vacancy rate, which was fairly stable at 10 percent, is now rising quickly and could hit 17 percent in 2009, he said.
  • Newmark Knight Frank, a real estate broker, expects the vacancy rate in Dallas to rise to 19 percent this year, from 16.3 percent. Houston....the vacancy rate is 11 percent and rising.
  • ....But many building owners, while struggling with more vacancies and less rental income, will need to refinance commercial mortgages this year. The persistent chill in lending from banks to the credit markets will make that difficult — even for borrowers who are current on their payments — setting the stage for loan defaults.
  • The prospect bodes ill for banks, along with pension funds, insurance companies, hedge funds and others holding the loans or pieces of them that were packaged and sold as securities.
  • Stock analysts say commercial real estate is the next ticking time bomb for banks, which have already received hundreds of billions of dollars in capital and other assistance from the federal government. Big banks — like Bank of America, JPMorgan Chase and Morgan Stanley each hold tens of billions of dollars in commercial real estate securities. The banks also invested directly in properties. (not to worry, we can bail out both the commercial property developers AND banks, and everything is covered by Uncle Sam and Uncle Ben - stop all this fussing about nothing - the nanny state will fix it. We need more commercial mortgage loans on our Federal Reserve balance sheet as we build out a more "balanced" portfolio)
  • Regional banks may be an even bigger concern. In the last decade, they barreled their way into commercial real estate lending after being elbowed out of the credit card and consumer mortgage business by national players. The proportion of their lending that is in commercial real estate has nearly doubled in the last six years, according to government data. (not to worry, this will be taken care of by TARP 4.0) Just as home loans were pooled, then carved up and sold to investors as securities over the last two decades, commercial property loans were repackaged for the financial markets. In 2006 and 2007, nearly 60 percent of commercial property loans were turned into securities. (heading to the Federal Reserve balance sheet near you)
  • Effective rents, after free rent and other landlord concessions, have already started to fall and are expected to decline 30 percent or more across the country from the euphoric days of the real estate boom, according to real estate brokers and analysts. (so supply and demand still works? Need to stop that right quick! Someone call Geithner and Summers - this must be stopped!) That is making it all the more difficult for owners, who projected ever-rising rents (sort of like projecting ever rising home values - whomever creates these models really needs to be exposed to "the real world") when they financed their office buildings, hotels, shopping centers and other commercial property. Owners typically pay only the interest on loans of 5, 7 or 10 years and refinance the big principal payments necessary when the loans come due.
  • Among commercial properties, the most troubled have been hotels and shopping centers, [Nov 27: AP - Malls, Hotels Next Victims in New Mortgage Crisis] where anemic sales and bankruptcies by retailers are leading to more vacancies and where heavily leveraged mall operators, like General Growth Properties and Centro, are under intense pressure to sell assets. But analysts are increasingly worried about the office market.
  • The Real Estate Roundtable sees a rising risk of default and foreclosure on an estimated $400 billion in commercial mortgages that come due this year. (bailout! bailout! bailout!) Already, $107 billion worth of office towers, shopping centers and hotels are in some form of distress, ranging from mortgage delinquency to foreclosure
  • Most loans, he said, were made at 50 percent to 70 percent of property values. At the top of the market in 2006 and 2007, though, some owners took advantage of available credit and borrowed 90 percent or more of the value of a property, a strategy that works only in a rising market. Since then, property values have dropped 20 percent, Mr. DeBoer said. (wow sounds vaguely familiar - what other market did we see this in... hmmm... anyhow, I believe we should bailout those who engage in risky behavior and immense leverage- it's the right thing to do and my unborn grandchildren are sending me messages that they are cool with it.)
So along with too many restaurants, retail outlets, homes, strip malls... we can add office buildings. Perhaps with every 4% mortgage we hand out we can throw in 1500 square feet of prime office space to sweeten the deal. If you're subprime - even better - along with your 0% GMAC 5 year auto loan - you get 2500 sq feet... please... just BORROW! Uncle Sam demands it.

Look folks, I don't have any fancy schmancy models and I'm sure the 28 year old guy straight out of one of our best business schools - who made this "model" that apparently every Wall Street firm and commercial property developer used - was incredibly smart (but he was hit with a Black Swan event). Yet somehow I could see this quite a few moons ago - I have a super secret model I call "thinking" (no Excel sheet required)... but then again, unlike most parts of our government I still believe in the business cycle. The 28 year old guy's "model" (and Greenspan's Federal Reserve) apparently does not.

[Mar 4, 2008: WSJ - Building Slowdown Goes Commercial]

LDK Solar (LDK) Shows the Problem with "Hope"

I knew we were playing with fire here in the solar area. I wrote last Wednesday [Dec 31: Tax Loss Selling in ReneSola...]

(A) Solar has been one of our worst performing "bets"... I predicted a lot of consolidation in this space as it is a commodity but I thought it would come later - 2010/2011. It seems to be coming much sooner than I anticipated and I expect 2009 to be a rough one for solar [BusinessWeek: Clouds Over Solar Sector] I honestly fear for the viability of some of these names - keep in mind for every 1 public company listed in the US there are 10 counterparts (usually of smaller ilk) operating in China or Hong Kong - many of those shall perish. The credit contraction and drop in oil from $140 to $40 has destroyed this sector - I was hoping Obamamania would drive up these stocks but aside from yesterday and election day there has been nothing.

that said, what I talked about above (business issues) are facts, and you know when Obama comes out with his energy policy and specifics the lemmings will drive up solar stocks at some point. So I want to have some exposure for those moments. Ironically the Chinese stocks have reacted better to Obama then the American stocks, but the only reason that is... is there are no facts on the Obama energy policy and its just speculation driven gambling by investors - and the Chinese stocks have the lowest prices and thus are the easiest for daytraders to run up. It's all about thesis, not facts.

And this is the problem with almost the entire market right now - we've now had 6 weeks of rally on hope - hope of the government, hope of the Federal Reserve... hope, hope, hope, hope. They will save us - the same people who 3 years ago hated government interference since it ruined innovation now pray at the alter of government interference. The only reason to buy stocks is hope or technical - stocks are not going down on bad news - hence it's time to buy. That's the casino way of doing things. Maybe we can rally on hope for another 12-15 months until facts actually say business is improving. I'd find it hard to believe. LDK Solar (LDK) is case in point - I only own these 2 solar stocks for one reason - Obama.
  • Solar wafer maker LDK Solar Co Ltd (LDK) warned on Monday of lower-than-expected fourth quarter and 2009 revenue, saying the global economic crisis and tight credit markets have weakened demand for solar power, sending its shares down nearly 14 percent.
  • The Chinese company also said it experienced a delay ramping up production at its new polysilicon plant.
  • LDK expects fourth-quarter revenue of $425 million to $435 million. It previously forecast revenue of $555 million to $565 million for the quarter.
The horror. I thought Obama was all powerful and just by uttering words solar shall drive up demand in a world lacking of credit, and flush in solar panels. No? That's the hope. Hope. Hope. Hope.

The "thesis mongers" have unfortunately dominated more and more of the market in the past few years - everyone trying to front run each other ahead of a trend or a pattern. Hope is not a good reason to buy anything from an analytical sense but in this market Obama has been enough to move certain infrastructure stocks up 100% in weeks. It's been enough to drive a few of these solar stocks up 40% in a week. If you sit on the sideline scoffing at the absurdity of it all, you leave lots of profits on the table.

Obama. Hope. Obama. Hope.

That's not an investing theme... it's nothing but thesis. Until facts get in the way. And what LDK Solar announced yesterday is simply a precursor of what we are going to see over and over and over for at LEAST the next 120-150 days. Facts. Damn those facts. Facts that completely are in opposite of hope. But we'll be told "look through the valley - look through the darkness; the market is discounting all the great things that shall awash us in 6 months". Sure.

So I'll repeat it once more - we will ping pong between hope and reality. Reality will be what LDK Solar says - and it will be repeated by company after company in the next few quarters, in industry after industry. "Hope mongers" will say - that's ok, Obama is on the way. Uncle Ben has saved us. Obama & Ben - like Sonny & Cher. "I Got You Economy"

And this is why 2009 will not be an easy year in the market. At some point the avalanche of facts will overwhelm the Hope at the top of the hill... but guessing when is an abstract concept. And until then, anyone who relies on logic will stare at the wall in awesome horror watching the market whistle past the graveyard. Same pattern, different year.

I reduced LDK Solar yesterday a bit, down to 1.6% of fund as the action was getting frothy and it ALMOST hit the targets we laid out for it, (we were up nearly $2 in a week) but we'll take some hit today. (our entry was in the $13.40s so not a horrible hit)

But not to worry, on Jan 20th when Obama whispers "alternative energy" all the world's people will dream of a solar panel on their roof and we can drive these stocks up again.

Nevermind facts. Just stick to hope. I will watch in wonder as the market attempts to do this month after month after month through all of 1st half 2009.

Long LDK Solar in fund; no personal position

Mosaic (MOS) Earnings - as Expected

After Mosaic's (MOS) warning in early December [Dec 2: Mosaic Warns, Stock Up] and Potash's (POT) a few weeks later [Dec 19: Potash Cuts Full Year Guidance; Intrepid Potash Falls off Cliff] yesterday's results were not at all unexpected. The open question is "what is priced into the stock".

Frankly right now HAL9000 is back to ruling the market and as goes oil, so goes everything that is 7 degrees of Kevin Bacon (or oil). It has been this way for the better part of a year now - individual subsectors of commodities mean very little - they all trade in one horde. Frankly it is frustrating. I don't know if this is a permanent change or temporary, but if it's temporary it has been this way for a very long time.

In October I broke out in detail Mosaic's earnings report [Oct 1: Market Hates Mosaic - Phosphates Not Up to Snuff] but the 'horde' trading in commodities has basically taken the winds out of my sails in terms of analyzing any commodity company's specific results - it really does not matter - just own 1 dry bulk shipper, 1 coal stock, and/or 1 fertilizer stock (or replace any of the previous with a copper stock, an iron ore stock, or an oil stock) and then just wait for oil or the Baltic Dry Index to move in the right direction and trade it. That is as "sophisticated" as it is nowadays. We own a few of these to have some exposure in these silly moves that have nothing to do with fundamentals - all 100-150 stocks in the commodity space should just be renamed "Oil and/or Baltic Dry Index Co.". Buy one, you buy them all.

Mosaic (MOS) focuses on phosphates and potash so here is some commentary from their earnings report - as I mentioned they had cut back production for this quarter but then guided it would only be a 1 quarter situation. I doubted that rose colored situation would come to fruition... and that was accurate as we read through the newest guidance. Again, at this point it is a moot point - this could be called DryBulkMosaic or MosaicOil for all that any of the following matter to HAL9000 and friends.
  • The Company expects to reduce phosphate and potash production significantly during the remainder of fiscal 2009
  • Results are expected to be weak at least through the fiscal third quarter (note: this is the company's second quarter since they have an atypical year end)
  • "Toward the end of the quarter, however, worldwide crop nutrient sales activity dropped sharply, and it is expected to remain weak through at least the third quarter. Because of these conditions, we are reducing our production to manage excess inventories, reducing capital expenditures, and working to maintain financial strength and flexibility."
  • Mosaic expects its operating cash flow to be negative at least through the third quarter as a result of the weak near-term outlook.
  1. Potash prices continued to trend upward, but below expectations due to less spot sales.
  2. Phosphate prices actually held in better than I expected, and in fact an improvement over last quarter but a stark warning in the earnings release The price momentum of the past several quarters reversed toward the end of the second quarter due to factors previously noted and significantly lower prices are expected in upcoming quarters.
I still like the agricultural area the best for the intermediate term (2-5 years) but if you read between the lines of what I wrote above - there simply is no reason to do any fundamental homework in this space until some time arrives where a coal stock is different from a fertilizer stock is different from an iron ore stock. I might finally jettison Mosaic after this "all commodity stocks need to double since oil is up 30% in a week" rally subsists - since owning 2 fertilizer stocks in this new era of no differentiation is 1 too many.

Unfortunately Obama does not heart fertilizer so we don't have that going for us either.

Long Mosaic, Potash in fund; no personal position

Monday, January 5, 2009

New Website Design on the Way

Just a "heads up" for those of you who visit the site rather than read 'Fund my Mutual Fund' via email or RSS feed/reader; we'll be rolling out a quite substantial re-design of the website sometime in the next 7 to 14 days. By "quite substantial" I imply you will probably think you are on the wrong website.

When I first started this "home on the internets" a year and a half ago, I spent a few days reading about how blogs work and what was the easiest platform for a non techie person to begin with, and then plunged in. Within a few days I realized I wanted to add a lot of things and needed a lot more space so I grabbed the current template from a site who redesigns Blogger websites, and then started 'plugging and playing' to add a lot of the content within the sidebars (left and right). And basically from that point I have done almost nothing in terms of website improvement. Filling the content section is job #1, and a full time endeavor in and of itself.

But this is now at the point there is a sometimes overwhelming amount of content in the right and left margins, and certainly for first time visitors I imagine it feels like a tangled jungle to sift through. So the new look should help to mitigate this, and give a more sleek and easy to use navigation - while giving us the ability to retain the majority of the information currently sitting in the margins. With the help of a professional hand we're working through the re-design... which will come with the added bonus of the deletion of the garish color scheme. (green on blue on tan - you'll always have a place in my heart)

Once we're up and running with the new design, feel free to send feedback on the look and more important the functionality.

Tomorrow evening, I'll be posting a brand new pledge sheet for future investors, that we've mothballed for the past half year or so as the market served to dramatically puncture investors portfolios. Remember, there is an end game to this website (beautifully designed as it will be) [Jan 7, 2008: Reader "Pledges" Toward Mutual Fund Launch] and that's to put a stake down in the investment world and launch "the people's fund" ;) After the fall and early winter carnage I would like to see take a new snapshot of where things stand in terms of momentum towards the $7M goal. More tomorrow....

New York Times Opinion Piece by Lewis and Einhorn

I usually don't bring over opinion pieces to the website, but there is a fascinating one by hedge fund manager David Einhorn & Michael Lewis, the author of "Liar's Poker" and for you baseball fans "Moneyball". It comes in two pieces online 'The End of the Financial World as We Know It' and 'How to Repair a Broken Financial World'

I'll post some excerpts below but these are two healthy sized pieces and if this type of thing is of interest to you, worth the full read. Since I'm so riled up about the gutting of checks and balances and the misalignment of the good of the many for the good of the few, this was a piece that struck about 50 chords with me. If you have any semi financially literate friends I'd recommend a printing of this entry or the original posts themselves - the more people who know about this white washing the better.
  • AMERICANS enter the New Year in a strange new role: financial lunatics. We’ve been viewed by the wider world with mistrust and suspicion on other matters, but on the subject of money even our harshest critics have been inclined to believe that we knew what we were doing. They watched our investment bankers and emulated them: for a long time now half the planet’s college graduates seemed to want nothing more out of life than a job on Wall Street.
  • This is one reason the collapse of our financial system has inspired not merely a national but a global crisis of confidence. Good God, the world seems to be saying, if they don’t know what they are doing with money, who does?
  • Incredibly, intelligent people the world over remain willing to lend us money and even listen to our advice; they appear not to have realized the full extent of our madness. We have at least a brief chance to cure ourselves. But first we need to ask: of what?
The next portion if about Bernie Madoff...
  • What’s interesting about the Madoff scandal, in retrospect, is how little interest anyone inside the financial system had in exposing it.
  • It wasn’t just Harry Markopolos who smelled a rat. As Mr. Markopolos explained in his letter, Goldman Sachs was refusing to do business with Mr. Madoff; many others doubted Mr. Madoff’s profits or assumed he was front-running his customers and steered clear of him. Between the lines, Mr. Markopolos hinted that even some of Mr. Madoff’s investors may have suspected that they were the beneficiaries of a scam. After all, it wasn’t all that hard to see that the profits were too good to be true. Some of Mr. Madoff’s investors may have reasoned that the worst that could happen to them, if the authorities put a stop to the front-running, was that a good thing would come to an end.
  • The Madoff scandal echoes a deeper absence inside our financial system, which has been undermined not merely by bad behavior but by the lack of checks and balances to discourage it.
  • “Greed” doesn’t cut it as a satisfying explanation for the current financial crisis. Greed was necessary but insufficient; in any case, we are as likely to eliminate greed from our national character as we are lust and envy. The fixable problem isn’t the greed of the few but the misaligned interests of the many.
  • OUR financial catastrophe, like Bernard Madoff’s pyramid scheme, required all sorts of important, plugged-in people to sacrifice our collective long-term interests for short-term gain. The pressure to do this in today’s financial markets is immense. Obviously the greater the market pressure to excel in the short term, the greater the need for pressure from outside the market to consider the longer term. But that’s the problem: there is no longer any serious pressure from outside the market. The tyranny of the short term has extended itself with frightening ease into the entities that were meant to, one way or another, discipline Wall Street, and force it to consider its enlightened self-interest.
Next onto about the pathetic excuse that are credit agencies; he who is PAID by the people whose instruments they are rating - i.e. let fox rate the chickens.
  • Everyone now knows that Moody’s and Standard & Poor’s botched their analyses of bonds backed by home mortgages. But their most costly mistake — one that deserves a lot more attention than it has received — lies in their area of putative expertise: measuring corporate risk.
  • Over the last 20 years American financial institutions have taken on more and more risk, with the blessing of regulators, with hardly a word from the rating agencies, which, incidentally, are paid by the issuers of the bonds they rate.
  • The American International Group, Fannie Mae, Freddie Mac, General Electric and the municipal bond guarantors Ambac Financial and MBIA all had triple-A ratings.
  • These oligopolies, which are actually sanctioned by the S.E.C., didn’t merely do their jobs badly. They didn’t simply miss a few calls here and there. In pursuit of their own short-term earnings, they did exactly the opposite of what they were meant to do: rather than expose financial risk they systematically disguised it.
Onto the SEC...
  • ... the S.E.C. itself is plagued by similarly wacky incentives. Indeed, one of the great social benefits of the Madoff scandal may be to finally reveal the S.E.C. for what it has become.
  • Created to protect investors from financial predators, the commission has somehow evolved into a mechanism for protecting financial predators with political clout from investors. (wow! thank you someone with clout for saying that out loud!)
  • The instinct to avoid short-term political heat is part of the problem; anything the S.E.C. does to roil the markets, or reduce the share price of any given company, also roils the careers of the people who run the S.E.C.
  • IT’S not hard to see why the S.E.C. behaves as it does. If you work for the enforcement division of the S.E.C. you probably know in the back of your mind, and in the front too, that if you maintain good relations with Wall Street you might soon be paid huge sums of money to be employed by it. (no different than our Congress people - many are just marking time until they can become lobbyists - and paid vast amounts more than they can in Congress to milk the system; gosh I wish Americans would wake up and see how corrupt these systems are - they should be outraged - the same pattern, over and over)
  • The commission’s most recent director of enforcement is the general counsel at JPMorgan Chase; the enforcement chief before him became general counsel at Deutsche Bank; and one of his predecessors became a managing director for Credit Suisse before moving on to Morgan Stanley. A casual observer could be forgiven for thinking that the whole point of landing the job as the S.E.C.’s director of enforcement is to position oneself for the better paying one on Wall Street.
  • And here’s the most incredible thing of all: 18 months into the most spectacular man-made financial calamity in modern experience, nothing has been done to change that, or any of the other bad incentives that led us here in the first place.
  • SAY what you will about our government’s approach to the financial crisis, you cannot accuse it of wasting its energy being consistent or trying to win over the masses. In the past year there have been at least seven different bailouts, and six different strategies. And none of them seem to have pleased anyone except a handful of financiers. (bingo!)
  • In the middle of all this, Treasury Secretary Henry M. Paulson Jr. persuaded Congress that he needed $700 billion to buy distressed assets from banks — telling the senators and representatives that if they didn’t give him the money the stock market would collapse. Once handed the money, he abandoned his promised strategy, and instead of buying assets at market prices, began to overpay for preferred stocks in the banks themselves. Which is to say that he essentially began giving away billions of dollars to Citigroup, Morgan Stanley, Goldman Sachs and a few others unnaturally selected for survival. The stock market fell anyway. It’s hard to know what Mr. Paulson was thinking as he never really had to explain himself, at least not in public.
  • Weeks after receiving its first $25 billion taxpayer investment, Citigroup returned to the Treasury to confess that — lo! — the markets still didn’t trust Citigroup to survive. In response, on Nov. 24, the Treasury handed Citigroup another $20 billion from the Troubled Assets Relief Program, and then simply guaranteed $306 billion of Citigroup’s assets. The Treasury didn’t ask for its fair share of the action, or management changes, or for that matter anything much at all beyond a teaspoon of warrants and a sliver of preferred stock. The $306 billion guarantee was an undisguised gift. The Treasury didn’t even bother to explain what the crisis was, just that the action was taken in response to Citigroup’s “declining stock price.”
How much is the $300 Billion we gave to Citigroup... err, lent.
  • Three hundred billion dollars is still a lot of money. It’s almost 2 percent of gross domestic product, and about what we spend annually on the departments of Agriculture, Education, Energy, Homeland Security, Housing and Urban Development and Transportation combined.
  • Had Mr. Paulson executed his initial plan, and bought Citigroup’s pile of troubled assets at market prices, there would have been a limit to our exposure, as the money would have counted against the $700 billion Mr. Paulson had been given to dispense. Instead, he in effect granted himself the power to dispense unlimited sums of money without Congressional oversight. Now we don’t even know the nature of the assets that the Treasury is standing behind. Under TARP, these would have been disclosed.
So what are your solutions Mr Smart Guys?
  • THERE are other things the Treasury might do when a major financial firm assumed to be “too big to fail” comes knocking, asking for free money. Here’s one: Let it fail. Not as chaotically as Lehman Brothers was allowed to fail. If a failing firm is deemed “too big” for that honor, then it should be explicitly nationalized, both to limit its effect on other firms and to protect the guts of the system. Its shareholders should be wiped out, and its management replaced. Its valuable parts should be sold off as functioning businesses to the highest bidders — perhaps to some bank that was not swept up in the credit bubble. The rest should be liquidated, in calm markets. Do this and, for everyone except the firms that invented the mess, the pain will likely subside. (I don't think Chuck Schumer would approve of this logical solution)
  • This is more plausible than it may sound. Sweden, of all places, did it successfully in 1992. And remember, the Federal Reserve and the Treasury have already accepted, on behalf of the taxpayer, just about all of the downside risk of owning the bigger financial firms.
  • Rather than tackle the source of the problem, the people running the bailout desperately want to reinflate the credit bubble, prop up the stock market and head off a recession. (yes! yes! so true!)
  • In its latest push to compel confidence, for instance, the authorities are placing enormous pressure on the Financial Accounting Standards Board to suspend “mark-to-market” accounting. Basically, this means that the banks will not have to account for the actual value of the assets on their books but can claim instead that they are worth whatever they paid for them. This will have the double effect of reducing transparency and increasing self-delusion (gorge yourself for months, but refuse to step on a scale, and maybe no one will realize you gained weight). And it will fool no one.
  • If we are going to spend trillions of dollars of taxpayer money, it makes more sense to focus less on the failed institutions at the top of the financial system and more on the individuals at the bottom. (no! no! no! the individuals at the bottom don't have lobbyist groups - why help them?? they are only lowly citizens of the country! Help the corporations!) Instead of buying dodgy assets and guaranteeing deals that should never have been made in the first place, we should use our money to A) repair the social safety net, now badly rent in ways that cause perfectly rational people to be terrified; and B) transform the bailout of the banks into a rescue of homeowners.
A series of solutions - the details found in the actual pieces
  1. Stop making big regulatory decisions with long-term consequences based on their short-term effect on stock prices.
  2. End the official status of the rating agencies.
  3. Regulate credit-default swaps.
  4. Impose new capital requirements on banks.
  5. Close the revolving door between the S.E.C. and Wall Street. But keep the door open the other way.
The funny thing is, there’s nothing all that radical about most of these changes. A disinterested person would probably wonder why many of them had not been made long ago. A committee of people whose financial interests are somehow bound up with Wall Street is a different matter.


A fantastic piece. Thank you someone for saying these things in a place they can't be so easily ignored. As all this goes on, our 40% of the country is uninsured, Medicare rockets towards insolvency, our states are going bankrupt, people are getting kicked out of homes left and right, our infrastructure crumbles - can't find money for all that. But the financiers of political elections? The trough is endless.

[New York Times: A Champion of Wall Street Reaps Benefits] <--- Chuck Schumer is looking out for the people... of Wall Street

[Nov 24: Details of the Citigroup Bailout]

[Nov 13: Washington Post - A Quiet Windfall for US Banks] <--- tax code snuck into TARP at last moment to create windfall for banks

[Oct 17: Your Tax Money Paid to Investment Banks and Hedge Funds via AIG] <--- how the AIG bailout basically was a direct transfer of funds into the investment banks like Goldman and Morgan Stanley

[Sep 7: Bailout Nation Continues - Fannie/Freddie Now Owned by You]

[May 4: Moral Hazard Run Amuck]

[Apr 4: Congress is Rushing to Help Homeowners (NOT!)] <---lobbyists got their industries a self bailout while naming it a "foreclosure relief bill

If the S&P Closes Below S&P 920....

... I shall take a short term swim in these evil instruments called Ultrashorts.

Sometimes I read the news on yahoo finance or wsj.com and just shake my head that the market can ever go up ;) It is a horror show out there in the real economy. Thankfully we can trade in the fake economy aka Wall Street. I have a monster good opinion piece from the New York Times that will post at 4 PM today - I encourage every reader to take the time to read at least my summary, if not the entire two pieces.

It's 3 PM, so I guess it's time to see if the 2008 "3 PM action" is put to death or if 2009 will be no different.

If I were shorting individual names - I'd be looking at some of the names we mentioned late last week [Jan 2: Potential Short Set Ups] as short candidates - some of these have not budged at all despite all this "hope". Also the "worst of breed" fluff like Las Vegas Sands (LVS) here as it buts against resistance in the $8.50s. iShares Dow Jones Real Estate (IYR) continues to call to me as a short - it is so perfectly set up that even the Ultrashort Real Estate (SRS) could work here.

"Short Me!" (stop loss $38.20)

A lot of retailers have also rallied much in the past 2 sessions and are hitting resistance. Since I cannot short individual names I'm stuck with the evil Ultrashorts. I have a 5% exposure which I'll probably take to 12-14% or so if S&P breaks 920 on the close, while we keep our boatload of cash on the sideline. If I could short individual names after this hectic of a rally, with so much resistance ahead I'd probably put on about 8-10 individual short positions.

Today is the type of day that makes my month - almost all our major long positions have sung higher so with only 3 of every 10 dollars in the market we are beating the market by 1.5%. That's "risk adjusted return" if there ever was such a thing. Many long names are in the +3-5%+ category- heck even pawn shops are hot today. If I could have 1 day a week like this I'd be a very content camper. RTG = Rising Tide Growth

I'd like to once again repeat - the more speculative the type of stocks that are being run up, the longer in the tooth this move is. What I am noticing is outside of a few names like SQNM almost all the "leaders" of the past 3-4 weeks are stalling out and starting to roll over - something I saw Friday as well. The merchandise leading us the past 2-3 days is not the type to bank on, for anything more than a quickie in and out trade. And there is no way you can root for energy prices (and the whole commodity complex) to go higher without realizing it will destroy whatever is left of the US consumer. We can't two weeks ago say the economy will recover in large part to the 'tax rebate' of lower gas prices and now today say the economy will recover, just look at oil prices - they signal a worldwide recovery. That's CNBC logic. Just can't have it both ways - even though stock market participants want to.

But... 3 PM arrives and with big money back from vacation we have to see if they are back to their last hour manipulations circa 2008.

Remember 2009 will be the year of sentiment - facts are going to be awful for many months to come. It's ping pong: hope vs reality. I expect a very wide range of trading (quite likely a 40% range from from top to bottom during the year) - and hence a traders market, not a buy and holder's. If you find yourself very bullish today instead of 4-5 weeks ago when prices were materially lower, this year will probably not treat you well. Not the type of market you want to be piling into stocks that have run so quickly...

As always, former resistance is new support so S&P 920 which was our ceiling for a long time is now our "support" - just be careful, it most likely will prove to be a trap door. Everything is technical driven in this market and the rats will all jump ship together once technical supports begin to break.

I'll start the countdown to the first CNBC anchor saying "Well I guess it was not all priced in..."

Bookkeeping: Adding to Illumina (ILMN)

I've been waiting a long while for Illumina (ILMN) to show signs of life - the stock has built a huge base and Friday finally crossed over the 50 day moving average ($26). I wanted to see a confirmation and today we seem to have one - with the stock in the $27.30s I am moving the stake up from 0.9% to 3.5% of the fund. We have a very nice low risk trade here - if the stock breaks back below the 50 day moving average we can cut back. To the upside we have no serious resistance until the early November highs of $32, and past that the 200 day moving average of high $34s (which is falling by the day).

If the stock continues its move up, I would not be surprised to see the 200 day moving average coincide with the early November highs by the time the stock gets to the low $30s.

Holding such a substantial cash stake, I am looking for these low risk sort of long side entries (that can be quickly exited if need be) as we outlined this weekend in potential portfolio candidates.

Long Illumina in fund and personal account

Confusing Action Today

With the Federal Reserve involved in so many markets I am not sure if our old markers we've learned over the years have as much meaning....

Strangely the dollar is up, but commodities also up....

Bonds finally cracking, 10 year falling... [Ultrashort Lehman 20+ Year Treasury (TBT) finally working] which you'd also assume would happen in parallel with a weaker (not stronger) dollar.

Befuddling but many of these markets now have the not so invisible hand of the government involved so it's difficult to read much into any of it. If the dollar were down today, all the rest of the moves today would make some sense.... instead, you just sort of shake your head.

As for the market, now that we've cleared S&P 920 - for a continued bullish stance we'd want to hold that level and see dip buying for a push up to S&P 950. Obama is going to throw in $300 B in tax cuts it appears in his stimulus, which should make the GOP cry in joy and I am shocked the market is not up 5% on this news alone. Or perhaps this was already leaked to those who need to know last week and hence the 6% move.... nah, stuff like that never happens in the stock market.

More speculative junk is rising today - Las Vegas Sands (LVS) which we pointed out yesterday as a potential short if it repeated Fridays action (+19%) is now up another 17% and butting against its 50 day moving average; lots of shorts being squeezed. I don't really want to step in until the overall market weakens because "animal spirits" are high - when you see small cap Chinese stocks of the $2-$5 variety doing their 30%+ jump thing, you know speculative fever has arrived. Same with the solar stocks which are the epitome of animal spirits. But again, the more speculative the junk people are running into - the farther along in the move we are.

Somehow we are up nearly 1% on the day versus the S&P 500's 0%, despite only being 30% invested. No complaints.

p.s. I said in Sunday's weekly review that we were missing housing, financial, and retail in most of last week's rally. Today these are among the strongest groups.

Long Ultrashort Lehman 20+ Year Treasury in fund; no personal position

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